China Sunergy Announces Preliminary Third Quarter 2012 Financial Results
PR Newswire
NANJING, China, Nov. 27, 2012
- Gross Margin Improved; Ongoing Market Diversification and Progress in
Downstream Projects
NANJING, China, Nov. 27, 2012 /PRNewswire/ -- China Sunergy Co., Ltd. (NASDAQ:
CSUN) ("China Sunergy" or "the Company"), a specialized solar cell and module
manufacturer, today announced its financial results for the third quarter
ended September 30, 2012. Despite a challenging macro-environment, the
quarterly results reflected sequentially narrower net losses[1], with many key
operating metrics, including shipments, conversion costs and gross margin, in
line with guidance. In the quarter, China Sunergy successfully diversified
into more geographies, with greater revenue contribution from markets
including Australia, France and Japan compared to the second quarter of 2012.
Third Quarter 2012 Financial Highlights
*Total revenue was US$59.5 million, a decrease of 46.1% compared with the
second quarter of 2012.
*Shipments totaled 82.5MW (81.9MW of which were module shipments), falling
by 45.1% over the second quarter of 2012. Shipment volume was consistent
with the Company's guidance of between 80 and 85MW.
*Average selling price (ASP) for the Company's solar modules was US$0.71
per watt, 4 cents or 5.3% lower than that of the second quarter 2012.
*Conversion costs for cells and modules in the third quarter of 2012 were
US$0.17 and US$0.23 per watt, respectively. This is slightly better than
the Company's expectation, and the Company reiterates its cost reduction
roadmap to achieve cell and module conversion costs of US$0.15 and US$0.21
per watt, respectively, at the end of 2012.
*Gross profit , including inventory provision totaling US$1.3 million, was
US$0.4 million, and gross margin was 0.7%. Achieving a positive gross
profit and gross margin was attributable to decrease in wafer costs.
Adjusted non-GAAP[2]gross profit, excluding the aforementioned inventory
provision, was US$1.7 million, leading to adjusted non-GAAP[2] gross
margin of 2.8% in the third quarter of 2012.
*Net losses[1] were US$23.2 million, an improvement over net losses of
US$30.3 million in the second quarter of 2012. Net margin was negative
39.0%. On an adjusted non-GAAP[2] basis, net losses were US$9.6 million,
and non-GAAP[2] net margin was negative 16.2%.
*Net loss per ADS [1] was US$1.74 on both a basic and a diluted basis,
compared to a net loss per ADS of US$2.26 on both a basic and a diluted
basis in the second quarter of 2012.Non-GAAP[2] net loss per ADS was US$
0.72 on both a basic and a diluted basis in the third quarter of 2012.
*Operating cash outflow in the third quarter was US$3.6 million, down from
an outflow of US$55.9 million in the second quarter of 2012. For the three
quarters ended September 30, 2012, the Company generated operating cash
inflow of US$25.5 million.
*Cash Position: As of September 30, 2012, the Company had cash and cash
equivalents and restricted cash of US$439.1 million, up from US$416.5
million as of June 30, 2012.
Operational, Technological and Business Highlights in Third Quarter
*Expanded further in the Australian market: The Company signed a 7.8MW
sales contract with Urban Group, the energy arm of a leading conglomerate,
Urban Group Australia. Delivery of the solar modules was completed in
August 2012.
*Secured 50MW sales to partner V2M in Eastern Europe: The Company agreed to
supply 50MW of multi-crystalline PV modules to its Bulgarian partner V2M
and its affiliates, for projects in Romania and Macedonia, in the third
and fourth quarters of 2012.
*Kicked off the first shipment to Dubai: The Company shipped 72kW of
multi-crystalline solar modules in early September 2012 to Carillion
Construction Ltd., a multinational company dedicated to sustainable and
green energy projects.
*China Sunergy's modules passed TUV "PID" Test: The Company's solar
modules passed the potential induced degradation test conducted by TUV
Rheinland Group with superior results of a 0.1% degradation rate, versus
the 5% benchmark. Such results again proved the quality and reliability of
China Sunergy's modules.
*QSAR cell efficiency improvement: The average efficiency of the Company's
QSAR cell has reached 19.0% in the third quarter of 2012, and the record
high was 19.7% as of September 30, 2012.
[1] Impairment indicators were identified in the third quarter of 2012
primarily as a result of the challenging conditions in the solar industry.
The Company is in the process of its impairment testing for long-lived assets
and finalizing the potential impairment charge. Therefore, these numbers are
preliminary and could change once the impairment testing is completed.
[2] China Sunergy's non-GAAP financial measures for the third quarter of 2012
are its corresponding GAAP financial measures as adjusted by excluding costs
related to non-cash charges, including an inventory provision totaling US$1.3
million and a bad debt provision totaling US$12.3 million. Please refer to
"Reconciliations of non-GAAP financial measures to the nearest comparable
GAAP measures" at the end of this press release.
Mr. Stephen Cai, CEO of China Sunergy, commented: "In spite of a challenging
market environment, our financial performance of this quarter remained in line
with expectations, and the Company has performed solidly in managing costs and
cash flow. We believe that the quarter marked a turning point for China
Sunergy, as we continued diversifying our end markets, forming new
partnerships with strong customers, and gradually transforming ourselves from
a pure manufacturer to a downstream solar solutions provider. China Sunergy
will continue to make strategic investments to develop European and US markets
despite ongoing trade disputes. We will also work diligently at business
fundamentals and continue to optimize our cost structure and pursue
technological advances. We are confident that we have the right business
strategies in place to weather the current industry turmoil and benefit from
future market recovery."
Third Quarter 2012 Financial Review
Total Revenue and Shipments
For the third quarter of 2012, total revenue was US$59.5 million (US$58.5
million of which was from modules), representing a sequential decline of 46.1%
over the second quarter of 2012, resulting from drops in both shipments and
ASP in the quarter.
Shipments for the third quarter of 2012 were 82.5MW, including 81.9MW of solar
modules, in line with the Company's guidance.
Although Italy and Germany remained important markets for the Company,
accounting for 16.8% and 15.3% of total revenue, respectively, in the third
quarter of 2012, the Australian market grew strongly, contributing 26.0% of
total revenue. This demonstrated China Sunergy's success in strategically
diversifying into more geographies. Other markets with notable revenue
contribution increases included France, Portugal and Japan.
Gross Profit and Gross Margin
Gross profit, which included an inventory provision totaling US$1.3 million,
was US$0.4 million in the third quarter of 2012, improving from the gross loss
of US$0.3 million in the second quarter of 2012. Gross margin was 0.7% for the
third quarter of 2012, compared to negative gross margin of 0.3% for the
second quarter of 2012. Lower wafer cost was the major driver for sequentially
better gross margin in the third quarter of 2012. Adjusted non-GAAP gross
profit, which excluded the aforementioned inventory provision, was US$1.7
million, leading to adjusted non-GAAP gross margin of 2.8% in the third
quarter of 2012.
ASP
Module ASP for the third quarter of 2012 was US$0.71 per watt, which was 4
cents (5.3%) lower than that of the last quarter. The lowered ASP was driven
by market forces, primarily caused by an imbalance of supply and demand
throughout the global solar value chain, and, to a lesser extent, continuously
falling raw material prices.
Costs
In the third quarter of 2012, wafer costs were US$0.27 per watt, representing
a sequential 1 cent decrease over the second quarter of 2012. The prices of
polysilicon and wafers are expected to continue declining mildly for the rest
of the year. Conversion costs of cells and modules manufactured in the third
quarter of 2012 were US$0.17 and US$0.23 per watt, respectively, which were
better than management's earlier expectations. Management reaffirmed the
Company's cost reduction roadmap to achieve cells and module conversion costs
of US$0.15 and US$0.21 per watt, respectively, at the end of 2012.
Operating Expense, Operating Profit/Loss and Net Income/Loss
The Company has identified impairment indicators related to its long-lived
assets mainly as a result of challenging conditions in the solar industry. The
Company expects the assessment process to take one to two months, and will
report the outcome and any impairment when it is completed. If an impairment
charge is made, it will be non-cash accounting charge, which will negatively
affect certain of the Company's financial statement items, including operating
expenses, operating profit/loss and net income/loss. Such potential impairment
charge has not been reflected in the discussion of preliminary results below.
Operating expenses surged to US$28.4 million in the third quarter of 2012,
from US$17.0 million in the second quarter of 2012. The significant increase
in operating expenses was due primarily to rising SG&A expenses, from US$14.7
million in the second quarter of 2012 to US$26.2 million in the third quarter
of 2012, which mainly included a bad debt provision of US$12.3 million
recorded in the third quarter of 2012, compared to the US$3.1 million bad debt
provision recorded in the second quarter. The increase in bad debt provision
was mainly due to specific accrual against several customers. Adjusted
non-GAAP operating expenses, which excluded the bad debt provision, were
US$16.1 million, in the third quarter of 2012.
Losses from operations were US$28.1 million, and net losses were US$23.2
million for the third quarter of 2012. Main factors accounting for the gap
between losses from operations and net losses included a US$7.8 million
foreign exchange gain from currency translation, US$2.1 million of interest
income, US$7.3 million of interest expense, and a US$2.0 million income tax
gain. On an adjusted non-GAAP basis, losses from operations were US$14.5
million, and net losses were US$9.6million for the third quarter of 2012.
Inventory
Inventories at the end of the third quarter of 2012 reached US$56.1 million, a
slight increase from US$53.3 million at the end of the second quarter of 2012.
The increase in third quarter inventories was primarily in preparation of an
increased spot market demand the Company expected in October 2012. The Company
carefully monitors its inventory balance and strives to maintain inventory at
a reasonable level.
Cash and Cash Flow
As of September 30, 2012, the Company had cash and cash equivalents of
US$190.7 million, and restricted cash of US$248.4 million. Operating cash
outflow was US$3.6 million for the third quarter of 2012, representing a
significant improvement from cash outflow of US$55.9 million in the second
quarter of 2012, as a result of stringent working capital control, resulting
in better accounts receivable and other receivable positions on the balance
sheet as of September 30, 2012.
Capital Expenditures
Capital expenditures were US$7.6 million for the third quarter of 2012 and
were primarily for continued expansion of R&D Center, which is expected to be
completed by the first quarter of 2013.
Additional Company Updates Subsequent to Q3 2012
*Signed sales contract with INFiNi in Japan: the Company signed a sales
contract for 1.65MW of solar modules with INFiNi Group, a well-known
conglomerate headquartered in Osaka, Japan. China Sunergy's solar modules
are to be installed in Okayama First Solar Plant in Japan, the first
ground-mounted solar project of INFiNi. All shipments were completed in
October 2012 as scheduled.
*Invested in China Sunergy's first solar parks in UK: the Company has
completed the transactions to procure its first two solar park projects,
with a size of about 5 MW each, in the southwest Cornwall region of the
U.K.. China Sunergy will arrange for the construction of the projects, and
then own and operate these two solar parks.
*China Sunergy's collaboration with Netherlands' Leading PV Integrator
OSPS: the Company signed a supply contract with Oskomera Solar Power
Solutions B.V in the Netherlands to deliver up to 7MW of high efficiency
monocrystalline solar modules to OSPS for roof-top projects covering 2,500
Dutch households.
Fourth Quarter Guidance
The Company believes that weak market demand and industry oversupply will
continue to adversely affect its business for the rest of the year, and it
expects that challenging conditions in the global solar market will persist
through the first half of 2013.
To the best of its knowledge at this time, the Company estimates that fourth
quarter shipments will be in the range of 90MW to 100MW. The Company expects
its gross margin to remain in low single digits and forecasts a net loss in
the fourth quarter of 2012. Such guidance is based on the average Euro-US
dollar exchange rate in September. For the full year 2012, the Company
reaffirms its estimated yearly total shipments at approximately 400MW to
420MW.
Conference Call
China Sunergy's management will host an earnings conference call on Tuesday,
November 27, 2012 at 8:00 a.m. Eastern Time (Tuesday, November 27, 2012 at
9:00 p.m.Beijing/Hong Kong time). The management team will be on the call to
discuss financial highlights of the third quarter in 2012, provide business
outlook and answer questions.
To access the conference call, please dial:
United States toll-free: +1 866 519 4004
International: + 65 6723 9381
Singapore: 6723 9381
800 819 0121 (Domestic) /400 620 8038 (Domestic
China: Mobile)
Hong Kong: +852 2475 0994
Please ask to be connected to Q3 2012 China Sunergy Co., Ltd. Earnings
Conference Call and provide the following passcode: 70980470.
China Sunergy will also broadcast a live audio webcast of the conference call.
The broadcast will be available for 7 days by visiting the "Investor
Relations" section of the company's web site at http://www.chinasunergy.com/
Following the earnings conference call, an archive of the call will be
available by dialing:
United States toll-free: +1 855 452 5696
International: +61 2 8199 0299
The passcode for replay participants is: 70980470. The telephone replay also
will be archived on the "Investor Relations" section of the company's website
for seven days following the earnings announcement.
About China Sunergy Co., Ltd.
China Sunergy Co., Ltd. is a specialized solar cell and module manufacturer .
China Sunergy manufactures solar cells from silicon wafers, which utilizes
crystalline silicon solar cell technology to convert sunlight directly into
electricity through a process known as the photovoltaic effect, and assembles
solar cells into solar modules. China Sunergy sells these solar products to
Chinese and overseas module manufacturers, system integrators, and solar power
systems for use in various markets. For more information, please visit our
website at http://www.chinasunergy.com .
Investor and Media Contacts:
China Sunergy Co., Ltd.
Elaine Li Phone: + 86 25 5276 6696 Email:
Elaine.li@chinasunergy.com
Brunswick Group
Hong Kong Ginny Wilmerding Phone: + 852 3512
5000 Email: csun@brunswickgroup.com
Shanghai Clarisse PanPhone: +
Annie Choi Phone: + 852 3512 5000 Email: 86-21-6039-6303 Email:
csun@brunswickgroup.com csun@brunswickgroup.com
Safe Harbor Statement
This announcement contains forward-looking statements within the meaning of
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. All statements other than statements of historical facts in this
announcement are forward-looking statements. These forward-looking statements
are based on current expectations, assumptions, estimates and projections
about the Company and the industry, and involve known and unknown risks and
uncertainties, including but not limited to, the Company's ability to raise
additional capital to finance the Company's activities; the effectiveness,
profitability, and the marketability of its products; litigations and other
legal proceedings, including any decisions by the US International Trade
Committee and Department of Commerce on the petitions filed; the economic
slowdown in China and elsewhere and its impact on the Company's operations;
demand for and selling prices of the Company's products, execution of our
strategy to expand into downstream solar power businesses, the future trading
of the common stock of the Company; the ability of the Company to operate as a
public company; the period of time for which its current liquidity will enable
the Company to fund its operations; the Company's ability to protect its
proprietary information; general economic and business conditions; the
volatility of the Company's operating results and financial condition; the
Company's ability to attract or retain qualified senior management personnel
and research and development staff; future shortage or availability of the
supply of raw materials; impact on cost-competitiveness as a result of
entering into long-term arrangements with raw material suppliers and other
risks detailed in the Company's filings with the Securities and Exchange
Commission. The Company undertakes no obligation to update forward-looking
statements to reflect subsequent occurring events or circumstances, or to
changes in its expectations, except as may be required by law. Although the
Company believes that the expectations expressed in these forward looking
statements are reasonable, it cannot assure you that its expectations will
turn out to be correct, and investors are cautioned that actual results may
differ materially from the anticipated results.
The following financial information is extracted from the Company's condensed
consolidated financial statements for the respective periods.
About Non-GAAP Financial Measures
To supplement China Sunergy's consolidated financial results for the third
quarter of 2012 presented in accordance with GAAP, China Sunergy uses the
following measures defined as non-GAAP financial measures by the SEC: gross
profit, losses from operations, net losses, operating expenses and net loss
per ADS excluding costs related to non-cash charges, including inventory
provision and/or bad debt provision. The presentation of these non-GAAP
financial measures is not intended to be considered in isolation or as a
substitute for the financial information prepared and presented in accordance
with GAAP. For more information on these non-GAAP financial measures, please
see the table captioned "Reconciliations of non-GAAP financial measures to the
nearest comparable GAAP measures" set forth at the end of this release.
China Sunergy believes that these non-GAAP financial measures provide
meaningful supplemental information regarding its performance. The Company
believes that both management and investors benefit from referring to these
non-GAAP financial measures in assessing the Company's performance and when
planning and forecasting future periods. A limitation of using non-GAAP gross
profit, losses from operations, net losses, operating expenses and net loss
per ADS is that these non-GAAP measures exclude costs related to non-cash
charges, including inventory provision and/or bad debt provision. Management
compensates for these limitations by providing specific information regarding
the GAAP amounts excluded from each non-GAAP measure. The accompanying table
has more details on the reconciliations between GAAP financial measures that
are comparable to non-GAAP financial measures.
China Sunergy Co., Ltd.
Unaudited Preliminary Condensed Consolidated Income Statement Information
(In US$ '000, except share and per share data)
For the 3 months ended
Sep 30, 2012 Jun 30, 2012 Sep 30, 2011
Sales to third parties 58,024 106,943 143,116
Sales to related parties 1,458 3,441 2,682
Total sales 59,482 110,384 145,798
Cost of goods sold (59,090) (110,669) (165,703)
Gross profit 392 (285) (19,905)
Operating expenses:
Selling expenses (5,403) (4,850) (4,458)
General and administrative expenses (20,772) (9,891) (11,746)
Research and development expenses (2,270) (2,245) (1,694)
Impairment of long-lived assets - * - -
Total operating expenses (28,445) * (16,986) (17,898)
Income(loss) from operations (28,053) * (17,271) (37,803)
Interest expense (7,334) (7,917) (6,969)
Interest income 2,098 2,152 1,135
Other income/(expenses), net 8,043 (10,387) 1,149
Changes in fair value of
derivatives 2 - 2,039
Income(loss) before income tax (25,244) * (33,423) (40,449)
Income tax benefit(expense) 2,022 * 3,141 9,168
Net income(loss) (23,222) * (30,282) (31,281)
Net income(loss) per ADS
Basic ($1.74) * ($2.26) ($2.34)
Diluted ($1.74) * ($2.26) ($2.34)
Weighted average ADS outstanding
Basic 13,372,292 13,372,292 13,372,292
Diluted 13,372,292 13,372,292 13,372,292
*: These figures are subject to change pending the finalization of the
Company's impairment testing.
China Sunergy Co., Ltd
Unaudited Preliminary Condensed Consolidated Balance Sheet Information
(In US$ '000, except share and per share data)
Sep30,2012 Dec31,2011
Assets
Current Assets
Cash and cash equivalents 190,724 209,479
Restricted cash 248,393 84,435
Accounts receivable, net 121,081 152,286
Other receivable, net 19,075 46,646
Project assets 15,180 9,204
Income tax receivable - 2,604
Inventories, net 56,106 43,978
Advance to suppliers, net 5,279 5,419
Amount due from related parties 50,057 634
Current deferred tax assets 13,722 * 6,416
Restricted cash-collateral account 1,625 -
Other current assets 54 249
Total current assets 721,296 * 561,350
Property, plant and equipment, net 183,015 * 164,535
Prepaid land use rights 28,771 * 23,360
Deferred tax assets 17,598 * 17,598
Intangible assets 2,700 * 4,839
Restricted cash-collateral account - 1,654
Amount due from related parties-non current 5,914 29,622
Other long-term assets 3,417 * 6,951
Total assets 962,711 * 809,909
Liabilities and equity
Current liabilities
Short-term bank borrowings 515,052 322,216
Accounts payable 70,185 47,720
Notes payable 48,488 56,206
Accrued expenses and other current liabilities 16,435 14,037
Income tax payable 82
Amount due to related parties 118,000 57,610
Collateral account payable 1,625 -
Convertible bond payable 1,500 -
Current defered tax libility 295 786
Total current liabilities 771,662 498,575
Collateral account payable - 1,654
Convertible bond payable - 27,500
Long-term debt 95,302 125,439
Accrued warranty costs 16,864 14,763
Other liabilities 3,343 2,891
Total liabilities 887,171 670,822
Equity:
Ordinary shares: US$0.0001 par value;
267,287,253shares issued outstanding as of
September 30, 2012 and December 31, 2011. 27 27
Additional paid-in capital 185,367 185,367
Accumulated profit(deficit) (144,063) * (81,006)
Accumulated other comprehensive income 34,209 * 34,699
Total equity 75,540 * 139,087
Total liabilities and equity 962,711 * 809,909
*: These figures are subject to change pending the finalization of the
Company's impairment testing.
Preliminary Reconciliation of non-GAAP results of operations measures to the
nearest comparable GAAP measures
(In US$ '000)
For the 3 months ended
Sep 30, 2012 Jun 30, 2012 Sep 30, 2011
GAAP Net loss (23,222) * (30,282) (31,281)
Inventory Write Down 1,279 382 26,804
Bad Debts provision 12,320 3,119 860
Impairment of long-lived
assets - * - -
Non-GAAP Net loss (9,623) (26,781) (3,617)
Non-GAAP Net loss per
ADS
Basic ($0.72) ($2.00) ($0.27)
Diluted ($0.72) ($2.00) ($0.27)
Weighted average ADS
outstanding
Basic 13,372,292 13,372,292 13,372,292
Diluted 13,372,292 13,372,292 13,372,292
*: These figures are subject to change pending the finalization of the
Company's impairment testing.
Website: http://www.chinasunergy.com